Low-performing stocks dominate gainers' chart amid market slump

A surprising rally in low-performing and non-operational stocks has raised concerns, as share prices of several junk and B-category companies continue to soar despite repeated warnings from the firms that no undisclosed price-sensitive information exists.

Several of these companies, some of which have been inactive for years and have failed to publish updated financial reports, witnessed sharp price hikes even as the overall market remained in a downturn for the third straight session this week.

On Thursday, among the top 10 gainers on the DSE, two were junk stocks while seven belonged to the B category. A stock is classified as junk if the company has kept its commercial operation shut for six months in a row, or failed to pay dividends for two consecutive years, or failed to hold its annual general meeting in time.

These underperforming stocks are significantly beating their industry peers nowadays that are in regular business operation, posting profits and giving dividends to their shareholders.

Market analysts said the price hike of the poorly performing companies or closed firms give a message that market manipulators are still active in the secondary market despite stricter punitive measures taken by the newly formed commission against wrongdoers.

"Speculative trading and short-term profit motives may have fuelled low-performing stocks rally, as no major fundamentals changes were seen in most of these companies," said Md Sajedul Islam, managing director of Shyamol Equity Management.

A notable example is Information Services Network, an IT firm whose stock price surged by 10 per cent on Thursday, making it the day's top gainer. This is despite the company reporting a loss of Tk 1.86 million for the nine months ending in March this year and paying just a 0.50 per cent cash dividend for FY24, following a nominal profit of Tk 1.34 million.

Moreover, the company's sponsor-directors also failed to hold a minimum 30 per cent shareholding jointly. They held only 21.47 per cent stake in the company.

Despite such grim financial performance, the IT firm's stock jumped more than 47 per cent this week to close at Tk 72.6 on Thursday.

Such an unusual price movement in recent times prompted the prime bourse to serve a show-cause notice on Tuesday to the company authority, enquiring about the reasons behind that.

The company returned a knee-jerk response, saying there was no undisclosed price-sensitive information for the recent price hike.

Even after being served show-cause notice, its stock price did not stop rising and soared 10 per cent further on Thursday, bringing into question investors' preference for such poor-performing stock.

Another poor performing company -- Samata Leather Complex -- which did not publish any quarterly financial results for FY25, saw its stock jump 9.92 per cent to 104.2 on Thursday.

Also, Samata Leather's stock price soared 47 per cent in a month from Tk 70.7 on July 22 this year, without any reason for investors to be keen on betting on the stock.

Though business operations had remained suspended, Zahintex Industries, a junk stock, surged 8.70 per cent and Zeal Bangla Sugar Mills, another junk stock, jumped 8.30 per cent on Thursday, becoming the day's seventh and 10th top gainers respectively.

The share price surge of closed companies is raising questions and analysts are suspecting price manipulation behind the price jump.

Without manipulation, such a kind of price jump of closed companies is not possible, said Mr Islam.

He said a stock exhibits rally when a certain group of people influence the price while others join the rally not to miss out on the opportunity to make quick bucks.

Manipulators have been turning to poor-performing stocks in the past few weeks, with hopes of higher returns from lower investments, he said.

The investors need to be careful to put money on low-performing stocks, he added.

Meanwhile, the benchmark equity index extended the losing streak for a third straight session on Thursday, as investors continued to prefer profit-taking and adopting a conservative stance ahead of the upcoming earnings and dividend declaration season.

The DSEX, key index of the Dhaka bourse, went down by more than 4 points or 0.08 per cent to 5,375 on Thursday. It lost 45 points in the past three sessions.

The DS30 index, a group of 30 prominent companies, however, gained 3 points to 2,089 and the DSES Index, which represents Shariah-based companies, rose nearly 3 points to 1,180.

The market participation remained subdued as the turnover came down to Tk 7.67 billion, down 20 per cent from the previous day's Tk 9.54 billion.

The Chittagong Stock Exchange also ended lower, with its All Share Price Index (CASPI) losing 65 points to 15,025, while the Selective Categories Index (CSCX) fell 42 points to 9,218.

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